UBS AG (UBSN) traders tried to rig Hong Kong’s benchmark interest rate between 2006 and 2009, the city’s central bank said following a more than yearlong probe.
The Hong Kong Monetary Authority found about 100 internal chat messages containing “change requests” by several traders for the bank’s submissions to set the Hong Kong Interbank Offered Rate, according to a statement today. While the requests had a “negligible impact” on fixings and no fines will be imposed, the regulator asked UBS to take disciplinary action against the employees responsible.
“When they discovered the requests, they did not draw that to our attention,” Arthur Yuen, the HKMA’s deputy chief executive, said at a press briefing today. “They did not report the cases to us. We equally find that unacceptable.”
The probe into possible misconduct in setting Hibor started with UBS in December 2012 and widened about six months later to add eight lenders, including HSBC Holdings Plc (HSBA), after crackdowns by the U.S., U.K., Japan and Singapore. Worldwide fines for rigging interest-rate benchmarks reached $6 billion in December.
The investigation found no evidence of collusion between the banks to manipulate the Hibor fixing and no evidence of misconduct at the other firms, the HKMA said. The authority asked another bank to conduct an external review of its communications records last month, according to today’s statement. Yuen declined to name the firm.
The central bank asked UBS to prepare a plan to address the “control and governance weaknesses” within six months and to submit a report from an external auditor on the effectiveness of the plan.
UBS shares fell as much as 2.5 percent and were 2 percent lower at 17.99 Swiss francs by 3:10 p.m. in Zurich trading. The shares have gained 6 percent this year, valuing the bank at 69.1 billion francs ($79.3 billion).
“We are pleased that the investigation of the HKMA returned the same results as our own internal investigation -- no collusion among banks and no noticeable impact on the fixing of Hibor,” Rob Stewart, a Hong Kong-based spokesman for UBS, said in an e-mail. The bank had “taken appropriate steps to incorporate the HKMA’s suggested improvements,” he said.
UBS ceased to be a Hibor reference bank in October 2010 and no longer makes submissions, HKMA said today.
The six traders and the bank’s Hibor submitter involved in the 100 chat messages have all left UBS, the HKMA said. There is evidence that about a third of the change requests affected the Hibor fixing rates submitted by UBS, the authority said.
The HKMA announced in February 2013 steps to strengthen the Hibor setting process that included moving the administration of the rate to the Treasury Markets Association from the Hong Kong Association of Banks, a lobby group.
Interbank offered rate fixings that have little demand, such as four- and five-month rates, will also be phased out, the HKMA said. Other measures included a decision to review the list of reference banks that submit the Hibor rates every year, instead of every two years.
Global scrutiny of benchmarks has shifted from interest rates to the currency and commodity markets. At least a dozen regulators are probing allegations that traders colluded to rig benchmarks in the $5.3 trillion-a-day currency market. According to documents obtained by Bloomberg News, the Bank of Canada is examining the way its own reference rate for the Canadian dollar is set, a report today shows
UBS in its annual report, also published today, said its precious-metals activities along with foreign exchange are the subject of an internal probes. UBS boosted Chief Executive Officer Sergio Ermotti’s compensation by 21 percent last year to 10.73 million francs, the annual report shows, as the bank returned to profit.
For UBS, “this year is likely to be another year of high litigation charges, similar to 2013,” said Kilian Maier, an analyst at Mainfirst Schweiz AG in Zurich, who has an outperform rating on the stock.
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